Q1 2024 Tetra Tech Inc Earnings Call
Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcast thickness presentation with slides in the investors section of its website at Tetra Tech dotcom.
This call is being recorded at the request of Tetra Tech.
Broadcast is copyright copyrighted property of Tetra Tech any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is prohibited.
With us today from management are Dan, Patrick Chairman, and Chief Executive Officer Keith.
Keith Burdick, Chief Financial Officer, Joe Hopkins, President and luxury Shoemaker, Chief Sustainability officer. They will provide a brief overview of the results and then we'll open the call for questions I.
I would like to direct your attention to the Safe Harbor statement in today's presentation. Today's discussion contains forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the.
S E T.
Except as required by law Tetra Tech undertakes no obligation to update its forward looking statements.
In addition, since management will be presenting some non-GAAP financial measures as references the appropriate GAAP financial reconciliations are posted in the investors section of Tetra Tech's website.
Speaker Change: At this time I would like to inform you all the participants are in a listen only mode.
Speaker Change: At the request of the company, we will open up the conference for questions and answers after the presentation with that I would now like to turn the call over to Dan Pat Pat track. Please go ahead Mr. Bacha.
Great.
Dan L. Batrack: Thank you very much Paul and good morning, everyone.
Dan L. Batrack: Welcome to our first quarter fiscal year 2024 earnings conference call.
Dan L. Batrack: We're looking forward to sharing with you Tetra Tech's first quarter results and how we're building on a record breaking 2023 performance.
Dan L. Batrack: We just celebrated our first year since the Rps group joined Us and we couldnt be happier with their successful transition into the greater Tetra Tech.
Dan L. Batrack: It's a pure play global leader in high end water and environmental consulting our future outlook is strong and it speaks to the success of our strategy to focus on the entire full water cycle and you're going to hear a lot more about this today from both Joe Hopkins and from Leslie Shoemaker.
Dan L. Batrack: Our leading with science approach is led by our talented workforce of scientists data analysts and engineers, who leverage our Tetra Tech Delta digital tool solutions and performing their work every day.
Dan L. Batrack: Delta technologies not only include analytic tools that make us best in class, but also include software and applications that are being subscribed to by our clients.
Dan L. Batrack: Based on our strong first quarter and the outlook that we see for the rest of the fiscal year. We've raised our full year guidance for net revenue and increased our earnings per share guidance to reflect a 20% growth rate year over year.
Dan L. Batrack: And while we report our financials on a U S GAAP basis for our international investors. We've included some ifr metrics for their reference.
Dan L. Batrack: I'll begin with an overview of the quarter, Steve Burdick, Our Chief Financial Officer will provide an overview of our financial performance and our capital allocation strategy.
Dan L. Batrack: Joe Hopkinson Doctor unless you're shoemaker are going to provide today and overview of our differentiated water surfaces.
Dan L. Batrack: Our first quarter results build on our record performance results that we had just last year in the first quarter of fiscal year 2020 for our net revenue increased 38%.
Operator: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is
Steven M. Burdick: Two 1 billion or one point or $2 billion, which represents a double digit organic growth rate.
Steven M. Burdick: Our EBITDA increased 32% to $131 million in the quarter, which generated an all time first quarter high earnings per share of $1 40.
Steven M. Burdick: This quarter also had strong new orders of $1 $2 billion, which resulted in our largest first quarter backlog of $4 74 billion, which is up 24% from last year.
Operator: With us today from management are Dan Batrack, Chairman and Chief Executive Officer; Chief Financial Officer, Jill Hudkins, President, and Leslie Shoemaker, Chief Sustainability Officer. They will provide a brief overview of the results, and then we'll open the call for questions. I would like to direct your attention to the Safe Harbor Statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. However, actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the FEC. With acceptance required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investing section of TetraTax. At this time, I would like to inform you all that participants are in a listen-only mode.
Steven M. Burdick: As I mentioned earlier, the alignment of Rps with Tetra Tech is proceeding extremely well and I'm really pleased to announce and share with you that in less than one year. Rps is EBITDA margin now exceeds 10% rising more than 600 basis points from when they joined US on January 23 of last year.
Steven M. Burdick: I'd like to start by providing you an overview of our performance by our end customers.
Steven M. Burdick: In the first quarter revenue for all four of our client sectors increased by double digits compared to last year.
Steven M. Burdick: Work for our U S federal clients was up 49%.
Steven M. Burdick: From the same quarter last year.
Steven M. Burdick: Federal growth was driven by the department of defense and USAID resiliency consulting.
Steven M. Burdick: Our state and local revenues grew organically about 16% continuing to be driven by the work that we're doing in the water supply and treatment areas.
Operator: At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.
Steven M. Burdick: You're going to hear a lot more about from Jill and Leslie later in this call.
Steven M. Burdick: Our U S. Commercial net revenues were up about 10% from last year.
Dan L. Batrack: Great. Thank you very much, Paul. And good morning.
Steven M. Burdick: This growth was driven by increases in infrastructure de carbonization, which has performed mostly in our high performance buildings practice, environmental permitting and high end consulting and energy transition services.
Dan L. Batrack: And welcome to our first quarter of fiscal year 2024 earnings conference call. We're looking forward to sharing with you Tetra Tech's first quarter results and how we're building on our record-breaking 2023 performance. We just celebrated our first year since the RPS group joined us, and we couldn't be happier with their successful transition into the greater Tetra Tech. As a pure play global leader in high-end water and environmental consulting, our future outlook is strong. It speaks to the success of our strategy to focus on the entire full water cycle.
Steven M. Burdick: And finally, our international revenue.
Steven M. Burdick: <unk> was up 74%.
Steven M. Burdick: The international operations, together with Rps or growing our water and clean energy services, especially in the geographies of the United Kingdom and in Australia.
Steven M. Burdick: Okay.
Steven M. Burdick: I'd like to share with you our performance by each of our two segments. The government services group and our commercial international segment.
Dan L. Batrack: And you're going to hear a lot more about this today from both Jill Hudkins and from Leslie Shoemaker. Our Leading with Science approach is led by our talented workforce of scientists, data analysts, and engineers who leverage our Tetra Tech Delta digital tool solutions to perform their work every day. Our Delta technologies not only include analytic tools that make us best in class but also include software and applications that are being subscribed to by our clients. Based on our strong first quarter and the outlook that we see for the rest of the fiscal year, we've raised our full-year guidance for net revenue and increased our earnings per share guidance to reflect a 20% growth rate year-over-year. And while we report our financials on a U.S. GAAP basis, for our international investors, we've included some IFR metrics for their reference.
Steven M. Burdick: In the first quarter the government services group, we referred to it as our GSP segment was up 25% compared to last year to 443 million.
Steven M. Burdick: And generated a strong 14, 3% margin in the quarter.
Steven M. Burdick: Key revenue drive key revenue growth drivers included inland waterways and coastal flood protection programs as well as continued support for our USAID energy programs.
Steven M. Burdick: For comparison purposes, I will note that the first quarter of last year our 2023.
Steven M. Burdick: Extremely busy across all of Tetra Tech because we were responding to the impacts of hurricane in that went across south, Florida, which drove our margins to more than 17% in the first quarter of last year and so at least on a margin basis. It was a very high comp to two.
Dan L. Batrack: I'll begin with an overview of the quarter. Steve Burdick, our chief financial officer, will provide an overview of our financial performance and our capital allocation strategy. And Jill Hudkins and Dr. Leslie Shoemaker are going to provide an overview today of our differentiated water service.
Steven M. Burdick: To compare the performance of this year.
Steven M. Burdick: On the commercial and international group or the <unk> segment, we grew our net revenue by 49% and delivered a 12, 5% margin for this segment in the quarter.
Steven M. Burdick: While the addition of Rps contributed significantly to the top line of revenue growth, we did see the.
Dan L. Batrack: Our first quarter results build on the record performance results that we had just last year. In the first quarter of fiscal year 2024, our net revenue increased 38% to $1.02 billion, which represents a double-digit organic growth rate. Our EBITDA increased 32% to $131 million in the quarter, which generated an all-time first quarter high burn per share of $1.40.
Steven M. Burdick: Segment grow at about a 10% organic rate.
Speaker Change: I'd now like to discuss backlog.
Speaker Change: Our best forward looking indicator in our business.
Speaker Change: As I previously noted on these quarterly Investor calls, we report backlog based on contracts that are signed.
Speaker Change: Projects that are funded.
Speaker Change: And where we received authorization from our clients.
Speaker Change: It's already been received here in house all three of these are required before we include any dollars in our backlog.
Dan L. Batrack: This quarter also had strong new orders of $1.2 billion, which resulted in our largest first quarter backlog of $4.74 billion, which is up 24% from last year. As I mentioned earlier, the alignment of RPS with Tetra Tech is proceeding extremely well. And I'm really pleased to announce and share with you that in less than one year, RPS's EBITDA margin now exceeds 10%, rising more than 600 basis points from when they joined us on January 23rd of last year. I'd like to start by providing you an overview of our performance by our end customers. In the first quarter, revenue for all four of our client sectors increased by double digits compared to last year, and work for our U.S. federal clients was up 49 percent from the same quarter last year. Federal growth was driven by the Department of Defense and USAID Resiliency Consulting.
Speaker Change: Now we do not include in backlog the financial estimates for future orders on the more than $25 billion, we holding contract capacity across the company.
Speaker Change: Yeah.
Speaker Change: Key wins that added to our contract capacity in the quarter included recent awards of $125 million, United Utilities program quite amped eight better reverts program.
Speaker Change: And $800 million U S Army Corps of Engineers P fast remediation contract and a $450 million great Lakes environmental restoration contract.
Overall, we booked about $1 $2 billion in orders in just the first quarter of 2024 as.
Speaker Change: As a result, our backlog was up 24% from last year, resulting in a new first quarter high.
Speaker Change: 474 billion of funded and authorized work that we have in house.
Dan L. Batrack: Our state and local revenues grew organically by about 16 percent, continuing to be driven by the work that we're doing in the water supply and treatment areas that you're going to hear a lot more about from Jill and Leslie later in this call. Our U.S. commercial net revenues were up about 10% from last year. This growth was driven by increases in infrastructure decarbonization, which is performed mostly in our high-performance buildings practice, environmental permitting, and high-end consulting and energy transition services.
Speaker Change: Now I'd like to turn the now I'd like to turn the presentation over to Steve Burdick, Our Chief Financial Officer, who will go over some more of the details of our financials from the first quarter.
Steven M. Burdick: Hey, Thank you Dan So I would like to now provide an update on our working capital and cash flow for the first quarter. So cash flows generated from operations for the first quarter were positive for the trailing 12 months totaled $353 million, which is up 26% year over year.
Steven M. Burdick: Now over the same 12 months cash flows exceeded net income by more than 152%.
Dan L. Batrack: And finally, our international revenue was up 74%. Now, our international operations, together with RPS, are growing our water and clean energy services, especially in the geographies of the United Kingdom and Australia. I'd like to share with you our performance by each of our two end segments, the government services group and our commercial international segment. In the first quarter, the Government Services Group, we refer to it as our GSG segment, was up 25% compared to last year to $443 million and generated a strong 14.3% margin in the quarter.
Steven M. Burdick: And as I further thought about this key metric actually researched our historical financial results. We found that our cash flow from operations has exceeded our net income every year for the last two decades.
Steven M. Burdick: And.
Steven M. Burdick: So I'm not aware of many other companies who have that same track record. So I'm really proud of what <unk> been able to do.
Steven M. Burdick: Our focus on working capital and cash flows as resulted in our DSO, reflecting an industry, leading standard of 55 days versus the industry average at over 80 days.
Steven M. Burdick: This first quarter results were an improvement of 16% over last year.
Speaker Change: Can we consider this high watermark for working capital to be sustainable over the long term as we continue to make cash flows from operations and priority.
Dan L. Batrack: Key revenue growth drivers included inland waterways and coastal flood protection programs, as well as continued support for our USAID energy program. For comparison purposes, I'll note that the first quarter of last year, or 2023, was extremely busy across all of Tetra Tech because we were responding to the impacts of Hurricane Ian that went across Florida, which drove our margins to more than 17% in the first quarter of last year. And so, at least on a margin basis, it was a very high comparison to compare our performance this year. In the commercial and international group, or the CIG segment, we grew our net revenue by 49% and delivered a 12.5% margin for this segment in the quarter.
Speaker Change: The lower DSO metric also provide significant insight into our core business as it reflects the outstanding work that our project managers perform relative to high quality projects and highly satisfied clients and a broad portfolio across all of our end markets and all of our geographies.
Speaker Change: Our net debt amounted to $746 million and the net debt on EBITDA was that.
Speaker Change: Was the leverage of one five times.
Speaker Change: Well within our target and much lower than when we acquired Rps a year ago.
Speaker Change: In addition, we are we have a total cash position of about $199 million at the end of the quarter.
Speaker Change: So as we present here today, we continue to execute on high quality operating results with strong cash flows.
Dan L. Batrack: While the addition of RPS contributed significantly to the top line of revenue growth, we did see the CIG segment grow at about a 10% organic rate. I'd now like to discuss backlog, our best forward-looking indicator in our business. As I previously noted on these quarterly investor calls, we report backlog based on contracts that are signed, projects that are funded, and where we receive authorization from our clients that's already been received here in-house. All three of these are required before we include any dollars in our backlog. Now, we do not include in backlog the financial estimates for future orders on the more than $25 billion we hold in contract capacity across the company.
Speaker Change: Days sales outstanding.
Speaker Change: Average.
Speaker Change: Targeted range.
Speaker Change: Yeah.
Speaker Change: For those following along on the presentation I'd like to now present, our capital allocation overview.
Speaker Change: 24.
Speaker Change: We have a significant amount of liquidity available to invest in organic and acquisitive priorities.
Speaker Change: And we have a well balanced mix of both fixed and floating rate debt to mitigate interest rate risk as we look to invest in key strategic priorities.
Speaker Change: We have a strong pipeline of acquisitions, which are aligned towards technical leaders, especially in the water and environmental spaces, where we have led the market for the last 20 years.
Speaker Change: And regarding our dividend program I want to announce that our board of directors approved a 26 dividend, which is a 13% increase year over year to be paid in the second quarter.
Steven M. Burdick: Key wins that added to our contract capacity in the quarter included recent awards of $125 million from United Utilities for the AMP 8 Better Rivers program, an $800 million U.S. Army Corps of Engineers PFAS remediation contract, and a $450 million Great Lakes environmental restoration contract. Overall, we booked about $1.2 billion in orders in just the first quarter of 2024. As a result, our backlog was up 24% from last year, resulting in a new first quarter high of $4.74 billion of funded and authorized work that we have in-house. Now I'd like to turn the presentation over to Steve Burdick, our Chief Financial Officer, who will go over some more of the details of our financials for the first quarter. Hey, thank you, Dan.
Speaker Change: And this was our 35th consecutive quarterly dividend with double digit increases in the amount paid.
Speaker Change: Vince we revised our capital structure in the last year to take advantage of the credit market to really support our financing needs.
Speaker Change: I wanted to remind our shareholders that we do still have available a significant portion of the $400 million.
Speaker Change: Buyback plan that was approved by our board.
Back in 2022 for future consideration as part of our capital allocation strategy going forward.
Speaker Change: Okay.
Speaker Change: Im really pleased to share these results for the quarter with you all and I want to thank you for your support.
Speaker Change: Now I'll hand, the call over to Leslie Shoemaker to discuss Tetra Tech's differentiated leadership in the water and environmental sector.
Steven M. Burdick: So I'd like to now provide an update on our working capital and cash flow for the first quarter. Cash flows generated from operations for the first quarter were positive, and for the trailing 12 months, they totaled $353 million, which is up 26% year over year. Now, over the same 12 months, cash flows exceeded net income by more than 152%.
Leslie Shoemaker: Thank you Steve.
Leslie Shoemaker: Hello, My name is Leslie Shoemaker and I've spent over 30 years with Tetra Tech in the research and development of watershed simulation.
Leslie Shoemaker: Ship protection studies, and the advancement of our Tetra Tech Delta offerings across the company.
Speaker Change: <unk> pure play focused on water and environment has differentiated us from the very beginning.
Steven M. Burdick: And as I further thought about this key metric, I actually researched our historical financial results and found that our cash flow from operations has exceeded our net income every year for the last two decades. And I've got to say, I'm not aware of many other companies who have that same track record, so I'm really proud of what Tetra Tech has been able to do. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 55 days versus the industry average of over 80 days.
Speaker Change: Since our founding in 1966, we have developed first of a kind solutions for the entire water cycle and then provided our clients with practical implementation at scale.
Speaker Change: Tetra Tech has set the standard for water analytics from the earliest stimulation of flood protection structures to our industry, leading models of watershed behavior that are protected over 100000 critical water bodies worldwide.
Speaker Change: It is this work, leading with science and scaling solutions across government and commercial clients that has led to our rapid growth and the number one ranking that Tetra Tech has held in water for 20 consecutive years as.
Steven M. Burdick: This first quarter result is an improvement of six days over last year, and we consider this high-water mark for working capital to be sustainable over the long term as we continue to make cash flows from operations a priority. The lower DSO metric also provides significant insight into our core business as it reflects the outstanding work that our project managers perform relative to high-quality projects and highly satisfied clients in our broad portfolio across all of our end markets and all of our geography. Our net debt amounted to $746 million, and the net debt on EBITDA was a leverage of 1.5 times, well within our target and much lower than when we acquired RPS a year ago. In addition, we had a total cash position of about $199 million at the end of the quarter.
Speaker Change: As well as number one rankings in water treatment hydro and environment.
Speaker Change: So tetra tech works across the full water cycle in four major phases.
Speaker Change: We think of it as research and development.
Speaker Change: Powered by climate and watershed work.
Speaker Change: Water treatment.
Speaker Change: And then flood protection and navigation.
Speaker Change: Our water work represents approximately 85% of our annual revenue or approximately $4 $25 billion of revenue distributed across our four distinct water cycle phases.
Speaker Change: In the research and development phase.
Steven M. Burdick: So, as we present here today, we continue to execute on high-quality operating results with strong cash flows, industry-leading day sales outstanding, and leverage well within our target range. Now, for those following along in the presentation, I'd like to now present our capital allocation overview for 2024. We have a significant amount of liquidity available to invest in organic and inquisitive priorities, and we have a well-balanced mix of both fixed and floating rate debt to mitigate interest rate risk as we look to invest in key strategic priorities. We have a strong pipeline of acquisitions which are aligned with technical leaders, especially in the water and environmental spaces where we have led the market for the last 20 years. And regarding our dividend program, I want to announce that our Board of Directors approved a $0.26 dividend, which is a 13% increase year-over-year to be paid in the second quarter. This is our 35th consecutive quarterly dividend with double-digit increases in the amount paid.
Speaker Change: <unk> and revenue.
Speaker Change: But the most important and the work that we do working side by side with our clients to investigate new contaminants unlock the impact of climate on water quality and even decipher the root causes of degradation of essential water bodies.
Speaker Change: It's this research that actually helps drive us.
Speaker Change: To new opportunities and new research.
Speaker Change: <unk> provide the climate and watershed phase with the new ideas.
Speaker Change: In the climate in watershed phase at $2 billion in revenue a year by far the largest phase of our services. We scale these ideas into practical solutions.
Speaker Change: Applying our analytical and software solutions on large regional programs like the Chesapeake Bay, the Great Lakes, and the Gulf of Mexico, as well as essential water bodies worldwide.
Speaker Change: Now increasing variability and climate has also further increase the demand for our risk based analysis of watershed behavior and the science underpinning specific design solutions to adapt to these changes.
Leslie Shoemaker: As we revised our capital structure in the last year to take advantage of the credit market to really support our financing needs, I want to remind our shareholders that we do still have available a significant portion of the $400 million buyback plan that was approved by our board back in 2022 for future consideration as part of our capital allocation strategy going forward. I'm really pleased to share these results for the quarter with you all, and I want to thank you for your support. I will now hand the call over to Leslie Shoemaker to discuss Tetra Tech's differentiated leadership in the water and environmental sector. Thank you, Steve.
Speaker Change: Our leading with science approach has also built our Tetra Tech Delta solutions differentiate us.
Speaker Change: It's the ability to leverage new technology and apply it at scale that has been the hallmark of Tetra Tech's success.
Speaker Change: Today, we are scaling water solutions by providing new data platforms that make the application of artificial intelligence practical and useful in managing water related risks.
Speaker Change: The research and development, we do and the scalable solutions. We provide are the flywheel of our success in the water market.
Speaker Change: I'll now turn it over to Jill to speak to the other phases of the water cycle.
Leslie Shoemaker: Hello, my name is Leslie Shoemaker, and I've spent over 30 years with Tetra Tech in the research and development of watershed simulation, watershed protection studies, and the advancement of our Tetra Tech Delta offerings across the company. Tetra Tech's pure play focus on water and the environment has differentiated us from the very beginning. Since our founding in 1966, we have developed first of a kind solutions for the entire water cycle and then provided our clients with practical implementation at scale. Tetra Tech has set the standard for water analytics from the earliest simulation of flood protection structures to our industry-leading models of watershed behavior that have protected over 100,000 critical water bodies worldwide. It is this work, leading with science and scaling solutions across government and commercial clients, that has led to our rapid growth and the number one ranking that Tetra Tech has held in water for 20 consecutive years, as well as number one rankings in water treatment, hydro, and environment. So Tetra Deck works across the full water cycle in four major phases. We think of it as research and development, followed by climate and watershed work, water treatment, and then Flood Protection and Navigation.
Jill: Thank you Leslie although you may primarily nuomi as Tetra Tech's president.
Jill: Most of my 25 years with Tetra Tech designing advanced water treatment facilities.
The design of 15 desalination program.
Jill: And developed a deep passion for our digital water services using data and digital technologies to create value for our clients.
Tetra Tech is the market leader with $1 billion and water supply and treatment revenue per municipal commercial and federal clients.
Jill: We provide high end engineering and consulting services for advanced treatment for drinking water optimization of dealer networks and water reuse.
Jill: Tetra Tech designed so theyre kind water treatment programs for P fast removal.
Jill: Nathan and potable reuse, including our award winning Orange County Water District, <unk> program, which includes the largest P fast treatment facility.
Jill: In the U S.
Jill: Continuing with the water cycle Tetra tech as the industry leader with $1 billion and flood protection and navigation revenue for state local and federal clients. This phase of our water work includes planning permitting and design for Dan Levy's unlock including Tetra Tech's design of the largest search barrier ever constructed.
Jill: And by the Army Corps of Engineers.
Leslie Shoemaker: Our water work represents approximately 85% of our annual revenue or approximately $4.25 billion of revenue distributed across our four distinct water cycle phases. In the research and development phase, the smallest in revenue but the most important in the work that we do, working side by side with our clients to investigate new contaminants, unlock the impact of climate on water quality, and even decipher the root causes of the degradation of essential water bodies. It's this research that actually helps drive us to new opportunities and new research that can provide the climate and watershed phase with new ideas. In the climate and watershed phase, at $2 billion in revenue a year, by far the largest phase of our services, we scale these ideas into practical solutions, applying our analytical and software solutions to large regional programs like the Chesapeake Bay, the Great Lakes, and the Gulf of Mexico, as well as essential water bodies worldwide Now, increasing variability in climate has also further increased the demand for our risk-based analysis of watershed behavior and the science underpinning specific design solutions to adapt to these changes.
Jill: We are also a market leader for designing solutions that help communities adapt to the increased frequency of flood events.
Jill: Tetra Tech is the leader in all four phases of the water cycle, while many of our competitors perform work that is limited to only one or two parts of the water cycle.
Jill: Okay.
Jill: When we discuss market drivers for the water cycle a lot of airtime has been given to new federal infrastructure funding from the Iia IRI and the chips and Science Act.
Jill: Clients across all of our end markets are benefiting from multiple state local and commercial funding opportunities, sometimes augmented by federal government funding like.
Jill: J a.
Jill: Leslie spoke to Tetra Tech's early water cycle position in client funded research and development.
Jill: Our clients such as the department of Defense, NASA, and Noah distribute more than $100 billion in annual funding for research and development.
Jill: Market drivers for Tetra Tech's watershed protection and restoration projects include an estimated 380 billion dollar spend for emerging contaminant removal from global watersheds as well as site specific environmental restoration program, such as the estimated $1 $8 billion cleanup program for them to stay forever.
Jill: Tetra Tech's water utility client fund their programs through a combination of established sources. These include user fee revenues that financing and tax receipts.
Leslie Shoemaker: Our Leading with Science approach has also built our Tetra Tech Delta solutions that differentiate us. It's the ability to leverage new technology and apply it at scale that has been the hallmark of Tetra Tech's success. Today, we are scaling water solutions by providing new data platforms that make the application of artificial intelligence practical and useful in managing water-related risks.
Jill: Sometimes supplemented by federal funding our loan program.
Jill: For example, the 96 billion pound U K water and <unk> program will be funded through user fee revenues and debt financing, while the $1 billion, Texas water fund has been funded 100% through state appropriation.
Jill: Climate change and multiple $1 billion.
Leslie Shoemaker: The research and development we do and the scalable solutions we provide are the flywheel of our success in the water market. I'll now turn it over to Jill to speak about the other phases of the water cycle. Thank you, Leslie.
Jill: Dream Storm events continue to drive demand for Tetra Tech's high end flood protection and navigation services.
Jill: The state of Florida estimates, a $4 billion spend to protect Florida coast from sea level rise and the state of California is investing $1 5 billion for modernizing the ports of Los Angeles and long Beach.
Jill Hudkins: Although you may primarily know me as Tetra Tech's president, I have spent most of my 25 years with Tetra Tech designing advanced water treatment facilities. I've led the design of 15 desalination programs and developed a deep passion for our digital water services, using data and digital technologies to create value for our clients. Tetra Tech is the market leader with $1 billion in water supply and treatment revenue for municipal, commercial, and federal clients. We provide high-end engineering and consulting services for advanced treatment of drinking water, optimization of sewer networks, and water reuse. Tetra Tech designs first of their kind water treatment programs for PFAS removal, desalination, and potable reuse, including our award-winning Orange County Water District PFAS program, which includes the largest PFAS treatment facility of its kind in the U.S.
Jill: And now I'd like to turn the presentation back to Dan.
Dan L. Batrack: Great. Thank you very much Jill and thank you Leslie for going over our position and our differentiation within the entire water market and specifically the entire water cycle.
Dan L. Batrack: And as we enter the election cycle here in the United States.
Dan L. Batrack: We received quite a few questions recently about how tetra Tech's business made by the outcome of the United States presidential election coming up this next November.
Dan L. Batrack: <unk> U S federal clients represent about 30% of the overall company's revenues and they're distributed pretty evenly across the department of defense civilian agencies and USA to the U S State Department.
Dan L. Batrack: I would like to start with each of these components will walk through them briefly and how we see there would be an impact depending on which administration may be in place when we come to the outcome of the election. This November.
Jill Hudkins: Continuing with the water cycle, Tetra Tech is the industry leader with $1 billion in flood protection and navigation revenue for state, local, and federal clients. This phase of our water work includes planning, permitting, and design for dams, levees, and locks, including Tetra Tech's design of the largest surge barrier ever constructed by the Army Corps of Engineers. We are also a market leader for designing solutions that help communities adapt to the increased frequency of flood events. Tetra Tech is involved in all four phases of the water cycle, while many of our competitors perform work that is limited to only one or two parts of the water cycle.
Dan L. Batrack: So let's start with the approximately 10% of our revenues from defense that are likely to have stable growth under the current administration for an increase under a Republican administration and typically have a high priority with either political party due to their essential need to support national security.
Dan L. Batrack: The second area, where the second 10% our civilian agency programs are largely essential for example, the services that we provide to our largest civilian client federal Aviation administration air traffic programs or just not optional and they require consistent funding and have bipartisan support and we really see.
Dan L. Batrack: No impact on the growth and the funding that we have in these areas of civilian programs now.
Jill Hudkins: When we discuss market drivers for the water cycle, a lot of airtime has been given to new federal infrastructure funding from the IIJA, IRA, and the Chips and Science Act. However, clients across all of our end markets are benefiting from multiple state, local, and commercial funding opportunities, sometimes augmented by federal government funding like the IAJA. Leslie spoke to Tetra Tech's early water cycle position in client-funded research and development. Our federal clients, such as the Department of Defense, NASA, and NOAA, disburse more than $100 billion in annual funding for research and development. Market drivers for Tetra Tech's watershed protection and restoration projects include an estimated $380 billion spend for emerging contaminant removal from global watersheds, as well as site-specific environmental restoration programs, such as the estimated $1.8 billion cleanup program for the Passaic River. Tetra Tech's water utility clients fund their programs through a combination of established sources.
Dan L. Batrack: The USAID or the U S State Department does have the potential to be impacted by a change in administration.
Dan L. Batrack: But it is interesting the timing of the impact that we've seen historically is highly tempered by the long duration of contract awards that we have when we go to international locations. These contracts are typically five to 10 years long.
Dan L. Batrack: And have a direct linkage to national Bank.
Dan L. Batrack: National Security interest, so theyre not as discretionary as many might might consider.
Dan L. Batrack: Of course, that's the 10% for each of these set 30%, but the remaining 70% of our revenues that are not associated with the U S. Federal government are comprised of commercial state and local and international work, which we see relatively unaffected.
Dan L. Batrack: The outcome of any U S presidential election.
Dan L. Batrack: So regardless of the administration elected we see Tetra Tech's federal revenues.
Dan L. Batrack: On a collective basis, either from continued increase in funding under a Democratic administration or through an increase in the outsourcing of government services under a Republican administration.
Jill Hudkins: These include user fee revenues, debt financing, and taxes. These are sometimes supplemented by federal funding or loan programs. For example, the 96 billion pound UK Water AMP-8 program will be funded through user fee revenues and debt financing, while the $1 billion Texas Water Fund has been funded 100% through state appropriation. Climate change and multiple $1 billion extreme storm events continue to drive demand for Tetra Tech's high-end flood protection and navigation services. The state of Florida estimates a $4 billion spend to protect Florida's coast from sea level rise.
Dan L. Batrack: Okay.
Speaker Change: I'd now like to present, our guidance for the second quarter and our increased guidance for fiscal year 2024.
Speaker Change: First for the second quarter of fiscal year 2024 are.
Speaker Change: Net revenue guidance is for a range of $990 million to one point over $4 billion with an associated diluted earnings per share of $1 25 to $8 35 per share.
Speaker Change: For the entire year.
Speaker Change: Our increased net revenue guidance is for a range of one four.
Dan L. Batrack: And the state of California is investing $1.5 billion in modernizing the ports of Los Angeles and Long Beach. And now I'd like to turn the presentation back to Dan. Great. Thank you very much, Jill.
Speaker Change: <unk>.
Speaker Change: For $1 5 billion to $4 3 billion with an associated diluted earnings per share of $5 90.
Speaker Change: To $6 20, and I would note that if you take a look at the mid point on the <unk>.
Dan L. Batrack: And thank you, Leslie, for going over our position and our differentiation within the entire water market and specifically the entire water cycle. As we enter the election cycle here in the United States, we received quite a few questions recently about how Tetra Tech's business may affect the outcome of the United States presidential election coming up next November. Tetra Tech's U.S. federal clients represent about 30% of the overall company's revenues, and they're distributed pretty evenly across the Department of Defense, civilian agencies, and USAID or the U.S. State Department. I'd like to start with each of these components to walk through them briefly and how we see there would be an impact depending on which administration may be in place when we come to the outcome of the election this November.
Speaker Change: <unk>, if you're following along on the webcast.
Speaker Change: This does represent a net revenue increase at a midpoint of 13% over a record high fiscal year 2023, and a midpoint of 19% over our GAAP earnings of 2023 to the midpoint of the guidance Ive just shared that we do have assumptions on the webcast, which you can see here for the entire year.
Speaker Change: We do anticipate intangible amortization of a total of $44 million or <unk> 59 per share and we provided on the presentation a breakdown of those charges per quarter and that are included.
Speaker Change: And our guidance, we do estimate a 27% effective tax rate for the year and approximately 54 million.
Speaker Change: Diluted shares outstanding.
Speaker Change: <unk>.
Speaker Change: In summary, as we begin fiscal year 2024, we see strong demand for our differentiated leading with science services in both the water and the environmental markets. Our first quarter results set new records for revenue and profitability, we've shared with you today.
Dan L. Batrack: So let's start with the approximately 10% of our revenues from defense that are likely to have stable growth under the current administration or an increase under a Republican administration and typically have a high priority with either political party due to their essential need to support national security. The second area, or the second 10%, are our civilian agency programs. These are largely essential. For example, the services that we provide to our largest civilian client, the Federal Aviation Administration, air traffic programs are just not optional, and they require consistent funding and bipartisan support, and we really see no impact on the growth and the funding that we have in these areas of civilian programs. Now USAID, or the U.S. State Department, does have the potential to be impacted by a change in administration. But it is interesting that the timing of the impact that we've seen historically is highly tempered by the long duration of contract awards that we have. When we go to international locations, these contracts are typically five to ten years long and have a direct linkage to national security interests. So they're not as discretionary as many might consider.
Speaker Change: And our strategic focus on the entire pure play water and environmental services markets are continuing to drive strong margin performance and long term growth.
Speaker Change: And I'm pleased to have shared with you today that we've raised our entire fiscal year 2024 guidance for both net revenue and earnings per share and with that Paul I would like to open the call up for.
Speaker Change: <unk>.
Speaker Change: Okay.
Paul: The question and answer your question, we will now begin.
Paul: Please be aware that there will be a 32nd pause now or webcast to allow for buffering.
Speaker Change: At this time audio participants are invited to submit their question. Please remember to mute the audio function on your computer before you speak.
Speaker Change: You are using a speaker phone.
Speaker Change: Please pick up the handset before pressing on the numbers.
Speaker Change: I'd like to ask a question. Please press star one on your Touchtone phone.
Speaker Change: Thank you. Our first question is from Tim Mulrooney with William Blair. Please proceed with your question.
Dan L. Batrack: Of course, that's the 10% for each of these; that's 30%. But the remaining 70% of our revenues that are not associated with the U.S. federal government are comprised of commercial, state, local, and international work, which we see relatively unaffected by the outcome of any U.S. presidential election. So regardless of the administration elected, we see Tetra Tech's federal revenues up on a collective basis, either from continued increases in funding under a Democratic administration or through an increase in the outsourcing of government services under a Republican administration. I'd now like to present our guidance for the second quarter and our increased guidance for fiscal year 2024. First, for the second quarter of fiscal year 2024, our net revenue guidance is for a range of $990 million to $1.04 billion with an associated diluted earnings per share of $1.25 to $1.35 per share. For the entire year, we have increased net revenue guidance for a range of one, sorry, four. $4.15 billion to $4.3 billion with an associated diluted earnings per share of $5.90 to $6.20.
Tim Mulrooney: Yes. Good morning, everybody. Thank you for taking my questions I have two this morning on the guide.
Tim Mulrooney: The first one it looks like you raised the midpoint of your full year guidance range for net revenue by about $75 million, we noticed you you'd be.
Tim Mulrooney: The first quarter by about $40 million. So you raised the full year by more than you beat the first quarter can you just talk about what's driving that confidence what businesses.
Tim Mulrooney: We're seeing strong demand or that youre excited about.
Tim Mulrooney: As you head into 2024.
Speaker Change: So great question, Tim and thank you for noticing that our raise was much more than our beat in the first quarter.
Speaker Change: I'd like to point out that a few of the examples I gave in our backlog commentary and that had added to our contract capacity of 25 billion I commented on our new win with the Army Corps of engineers of this $800 million I commented on our UK single award at over $100 million.
Speaker Change: And in fact, we included on our backlog sheet in the presentation, a full tabulation of New awards and what I would comment on those based on the way that Tetra Tech tracks and reports as backlog. These are new contract wins that have gone into our contract capacity and yet don't even show up in our backlog or revenue.
Speaker Change: And the first quarter, while our while we did book $1 2 billion in new orders that were added to our backlog I'll tell you. It's not nearly representative of how much new work, we won in the quarter and so a number of these new very large programs, we want really across the United States with many programs with the federal government.
Dan L. Batrack: And I would note that if you take a look at the midpoint on the graph, if you're following along on the webcast, this does represent a net revenue increase of 13% over a record high fiscal year 2023 and a midpoint of 19% over our gap earnings of 2023 to the midpoint of the guidance I've just shared. Now we do have assumptions on the webcast that you can see here for the entire year. We do anticipate intangible amortization of a total of $44 million, or 59 cents per share. And we've provided in the presentation a breakdown of those charges per quarter, and that is included in our guidance. We do estimate a 27 percent effective tax rate for the year and approximately 54 million diluted shares outstanding.
Speaker Change: State and local and others, both in the UK and Australia being the primary large awards are going to begin contributing to revenue as we move through the rest of the year.
Speaker Change: No.
Speaker Change: I think that with the new records of our backlog hitting new all time high is pretty clear to us, particularly with single awards that are going to be executed solely by Tetra Tech for these clients and the new synergies that we're receiving with we're seeing with Rps, we see that things are going to continue to build.
Speaker Change: Based on actual awards, not just a feeling or some insight that things are getting better. We've got tangible awards new clients new programs, starting up that are begin to contribute as we move through the year. So it's really those items that have come together to cause us to raise the outlook for the year, even more than we had in the first quarter and.
Dan L. Batrack: In summary, as we begin fiscal year 2024, we see strong demand for our differentiated leading science services in both the water and the environmental markets. Our first quarter results set new records for revenue and profitability, as we've shared with you today, and our strategic focus on the entire pure play water and environmental services markets is continuing to drive strong margin performance and long-term growth. And I'm pleased to have shared with you today that we've raised our entire fiscal year 2024 guidance for both net revenue and earnings per share. And with that, Paul, I would like to open the call up for questions.
Speaker Change: By the way you can see the growth rates in the upper 30%.
Just adding those numbers, we felt it was even better than that.
Speaker Change: Interesting okay.
Thank you very clear thank you Dan.
Speaker Change: Staying on this idea about the guide.
Speaker Change: I just wanted to ask I mean, it looks like you raised.
Operator: The question-and-answer session will now begin. Please be aware that there will be a 30 second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you, If you are using a speaker phone...
Speaker Change: The full year EPS guidance by about <unk>.
Speaker Change: 15 midpoint.
Speaker Change: Which is greater than what we would've expected.
Speaker Change: The increase in your revenue guide.
Speaker Change: I think that implies that you were expecting some stronger margins. This year can you. Just also talk about what kind of higher margin work that you're doing which I assume is differentiated.
Speaker Change: That's maybe helping drive that.
Speaker Change: That guidance.
Speaker Change: Yes, that's a really good question I think if you followed tetra tech for a number of years, you've seen we've continued to shape the business by moving more and more to the front end of the services of work we provide for our clients and I know that we are quite often discussed we do consulting and engineering work, but I would put a very large C on the consult.
Operator: Please pick up the handset before pressing any number. If you would like to ask a question, please press star one on your touchtone phone. Thank you. Our first question is from Tim Mulverney with William Blair. Please proceed with your question. Yeah, good morning, everybody. Thank you for taking my questions. I have two this morning on the guide.
Speaker Change: And maybe a lower E on the engineering because the work that we're providing is earlier and earlier by our scientists technical professionals and engineers, but it's not necessarily for general engineering support it's more and more for consulting being thought leaders, which allow us to have higher billing rates for the very differentiated individuals'.
Dan L. Batrack: The first one, it looks like you raised the midpoint of your full year guidance range for net revenue by about 75 million. And we noticed you beat that in the first quarter by about 40 million. So you raised the full year by more than you beat the first quarter. Can you just talk about what's driving that confidence?
Speaker Change: Really there isn't many that exist in the different markets. We have so we're average.
Speaker Change: The charge out rates are actually going up as we move to the earlier portion and by the way it's not that we're a more expensive, we're providing more value than ever to our clients on their approaches and evaluations and outcome of their programs.
Speaker Change: The second item, so I would say our average billing rates going up it's a more differentiated service and the carry slightly higher margins. So that's the differentiation between revenue coming in in margin, but I would say the second area is the use of the internal tools digital tools, we have that we utilize in the water cycle you heard both Leslie and Jill speak to those.
Dan L. Batrack: What businesses are seeing strong demand or that you're excited about as you head into 2024? So, great question, Tim, and thank you for noticing that our raise was much more than our beat in the first quarter. I would like to point out that a few of the examples I gave in our backlog commentary that had added to our contract capacity of $25 billion; I commented on our new win with the Army Corps of Engineers, that was $800 million; I commented on our UK single award, at over $100 million; and, in fact, we included on our And what I would comment on those, based on the way that Tetra Tech tracks and reports its backlog, these are new contract wins that have gone into our contract capacity and yet don't even show up in our backlog or revenue. And in the first quarter, while we did book $1.2 billion in new orders that were added to our backlog, I'll tell you, it's not nearly representative of how much new work we won in the quarter.
Speaker Change: So as we do the work on a fixed price basis more efficiently is converting to higher margins and so that's been helpful and were seeing that become a larger contribution and the final item that I would say is in its nascent phase at the very beginning is.
Speaker Change: I did get an early Christmas present this year.
Speaker Change: It did come through December and one of them was it was reported to me that Tetra Tech subscription services have actually seen an uptake we do have them on our website and these are areas, where we've not had a quote marketing team out trying to sell this declines, but we've had clients go to our website and actually subscribe for and put payments directly.
Speaker Change: On subscription services for the different software packages, we have for managing watersheds optimization for water treatment systems and other specialized services. So I'm glad to see that actually begin to take a.
Speaker Change: If I call. It certainly it's an organic but.
Self fulfilling subscription revenues, increasing still quite small, but it does contribute to this margin expansion that you see this reflected in our earnings increase for EPS for this year.
Dan L. Batrack: And so a number of these new, very large programs we won, really across the United States, with many programs with the federal government, state, and local governments, and others, both in the UK and Australia, being the primary large awards, are going to begin contributing to revenue as we move through the rest of the year. So I think that with the new records of our backlog hitting new all-time highs, it's pretty clear to us, particularly with single awards that are going to be executed solely by Tetra Tech for these clients, and the new synergies that we're receiving with, and we're seeing with RPS, we see that things are going to continue to build based on actual awards, not just a feeling or some insight that things are getting better
Speaker Change: That's interesting I know that you are.
Speaker Change: Sure.
Speaker Change: Cited to see that gain some traction because it's harder to gain traction, but then it builds on itself.
Speaker Change: Ill, let other than a lot of a lot of questions I'd love to ask you after that but I'll get back in the queue and let others ask questions. Thank you so much for your time.
Speaker Change: Okay. Thank you very much Tim.
Thank you. Our next question is from Sangeeta Jain with Keybanc capital markets. Please proceed with your question.
Sangeeta Jain: Yes. Thank you so much for taking my question and then if I can ask you on you had some nice amp eight and defense awards this quarter.
Sangeeta Jain: Amongst the recent wins can you elaborate a little bit on how you're seeing the pace of these awards materialize are you are you.
Sangeeta Jain: Still thinking of a slow ramp this year with the big next year or is it happening a little bit faster.
Dan L. Batrack: We've got tangible awards, new clients, and new programs starting up that will begin to contribute as we move through the year. So it's really those items that have come together to cause us to raise the outlook for the year even more than we had in the first quarter. And by the way, you can see the growth rates in the upper 30 percent. Just adding those numbers, we felt it was even better than that. Okay, wow.
Sangeeta Jain: Yes.
Speaker Change: Well I'll make a comment overall regarding a peak next year or late next year, we have spoken and I think both I've spoken I know Joel did on previous quarterly call that we expect the U S stimulus programs, particularly <unk>.
Speaker Change: To see a peak.
Speaker Change: Probably in late 2025, so a little over a year from now but amp eight.
Dan L. Batrack: Thank you. Very clear. Thank you, Dan.
Speaker Change: United Kingdom or <unk>.
Dan L. Batrack: Staying on this idea about the, I just wanted to ask, I mean, it looks like you raised the full-year EPS guide by about $0.15 at the midpoint, which is greater than what we would have expected from the Increase in Your Revenue Guide. I think that implies that you're expecting some stronger margins this year. Can you just also talk about what kind of higher-margin work that you're doing, which I assume is differentiated, that that's maybe helping drive that guide? Yeah, that's a really good question.
Speaker Change: U K wide asset management program for their water utilities, and it's really unrelated to a peak of next year. So we see that this is going to continue the contracting for their amp a cycle, which is a five year cycle. It's just beginning here shortly and maybe I can just have Jill <unk>.
Jill: Is tracking this quite closely both on <unk>, but more importantly, I'm really pleased to share with you that in the presentation to the client.
United Utilities, Jill herself was over there all the way up until essentially Christmas Eve, the Friday before Christmas are participating in our presentation and making commitments to in this case, our U K clients of United Utilities that will bring the best of all our Rps has and the more than 50 years of technical leadership, we hold here in the U S.
Dan L. Batrack: I think if you've followed Tetra Tech for a number of years, you've seen we've continued to shape the business by moving more and more to the front end of the services we provide for our clients. I know that we're quite often told that we do consulting and engineering work, but I would put a very large C on the consulting and maybe a lower E on the engineering because the work that we're providing is being done earlier and earlier by our scientists, our technical professionals, and engineers, but it's not necessarily for general engineering support. It's more and more for consulting, being thought leaders, which allows us to have higher billing rates for the very differentiated individuals that there aren't really many that exist in the different markets we have.
Jill: And bring all of those lessons learned to the UK and certainly I think it's just the first of I would hope many different successes, we have under the <unk> program, but maybe I can have just say a few words to this yes, thanks, Dan and great questions Sangeeta on Ambac UK water.
Jill: Although the the Amp eight funding cycle officially starts in April 2025, what were seeing is multiple U K water clients.
Dan L. Batrack: So our average chargeout rates are actually going up as we move to the earlier portion. And by the way, it's not that we're more expensive; we're providing more value than ever to our clients on their approaches, evaluations, and outcomes of their programs. The second item, so I would say our average billing rates are going up; it's a more differentiated service, and they carry slightly higher margins. So that's the differentiation between revenue coming in and margin. And I would say the second area is the use of the internal tools, the digital tools we have that we utilize in the water cycle. You heard both Leslie and Jill speak about those.
Jill: Going out for procurement to be ready and start the planning for the Amp eight water cycle a lot of our existing contracts are frameworks as they call them in the U K are also being utilized.
Jill: Start the planning or acceleration for the historic Amp eight U K water spend which I mentioned in my remarks. It is now.
Jill: 96 billion pounds, which is two times.
Dan L. Batrack: So as we do the work on a fixed price basis more efficiently, it's converting to higher margins, and so that's helping. We're seeing that become a larger contribution. And the final item that I would say is in its nascent phase at the very beginning is that I did get an early Christmas present this year. It did come through December, and one of them was that it was reported to me that Tetra Tech subscription services had actually seen an uptake. We do have them on our website,
Jill: <unk> from <unk> seven.
Jill: We're very excited about bringing the resources and capabilities and client relationships of Rps, along with Tetra Tech.
Jill: Water industry leadership in both ways.
Jill: Wastewater overflow reductions and high end water management services that Leslie and I talked about earlier on the call.
Speaker Change: Great. That's very helpful. Thank you if I can ask one more.
Dan L. Batrack: And these are areas where we've not had a quote marketing team out trying to sell this to clients, but we've had clients go to our websites and actually subscribe to and put payments directly down on subscription services for the different software packages we have for managing watersheds, optimizing water treatment systems, and other specialized services. So I'm glad to see that actually begin to take a, I don't know if I'd call it, certainly it's an organic, but self-fulfilling subscription revenues increase, still quite small, but it does contribute to this margin expansion that you see that's reflected in our earnings increase for EPS for this year. That's interesting. I know that you're excited to see that game get some traction because it's harder at first to gain traction, but then it builds on itself. But I'll let other a lot of questions I'd love to ask you after that, but I'll I'll get back in the queue and let others ask questions.
Speaker Change: Thank you for the breakdown on the elections and the possible outcomes, but if I can ask a more shorter term question.
Speaker Change: It looks like we've avoided a shutdown, but there is still not that much clarity on passing a full budget. So does this continuation of a short term CR situation heard your line of sight into funding opportunities like at what point do we start to worry over the next several months, if we don't get a full budget.
Speaker Change: Thank you.
Speaker Change: That's a really good question and I have spoken to this unfortunately.
Speaker Change: Quite a few times over the past few years because of the set of dysfunction.
Speaker Change: Sure.
Speaker Change: And this funding process.
Speaker Change: I personally and we here at Tetra Tech.
Speaker Change: An ongoing continuing resolution is a pretty good outcome.
Speaker Change: And in fact, a really good outcome.
Speaker Change: So continuing resolution means that we.
Speaker Change: We agreed to disagree and that will fund at the same level that existed a year before and the year before 2023 was at record highs and and in fact that allows the administration in this case the by.
Dan L. Batrack: Thank you. Thank you very much, Tim. Thank you. Our next question is from Sanjita Jain with KeyBank Capital Markets. Please proceed with your question. Yeah, thank you so much for taking my question. Dan, if I can ask you something, you had some nice M8 and PFAS awards this quarter amongst the recent wins.
Speaker Change: The administration of the Democrats to further the priorities that they have with the point is that they have in the different areas for executing our strategy. Those do include priorities for a clean environment for clean water or mitigation of climate change or extreme flooding events in areas that are very much.
Dan L. Batrack: Can you elaborate a little bit on how you're seeing the pace of these awards materialize? Are you still thinking of a slow ramp this year with a peak next year, or is it happening a little bit faster? Well, I'll make a comment overall regarding a peak next year or late next year. We have spoken, and I think both I have spoken and I know Jill did on a previous quarterly call that we expect the U.S. stimulus programs, particularly IIJA, to see a peak probably in late 2025, so a little over a year from now. But AMP-8 is a United Kingdom or UK-wide asset management program for their water utilities, and it's really unrelated to a peak of next year. So we see that this is going to continue the contracting for their AMP-8 cycle, which is a five-year cycle. It's just beginning here, shortly.
Speaker Change: <unk> as many of you.
Speaker Change: Describe that for us so continuing resolution.
Speaker Change: I would just assume they do one continuing resolution between now and the end of the fiscal year or September 30.
Speaker Change: That we don't have these various milestones where they do a continuing resolution, but I don't see that ACR actually has any negative impact for us in fact.
Speaker Change: That's pretty favorable and a lot of different different respects.
We will see how each one of these go that has they all have their own drama.
Speaker Change: 11th hour before they approve them but.
Speaker Change: But I don't see it as a as an issue, but one thing I will comment on this.
Jill Hudkins: And maybe I can just have Jill tracking this quite closely both on IIJA, but more importantly, I'm really pleased to share with you that in the presentation to the client for United Utilities, Jill herself was over there all the way up until essentially Christmas Eve, the Friday before Christmas, participating in our presentation and making commitments to, in this case, our UK clients of United Utilities that will bring the best of all our RPS and the And certainly, I think it's just the first of, I would hope, many different successes we have under the AMP program. But maybe I can have Jill say a few words on this.
Speaker Change: I go back many years. The first time there was a shutdown we were quiet.
Speaker Change: Disappointed and surprised that really you would really do this but this goes all the way back to Gingrich and a number of years ago, but if you take a look at the more frequent.
Speaker Change: Threats and.
Speaker Change: Dysfunction Thats taken place we've become much more adept at working with our clients to have funding put in place. So that we're well prepared for funding that's been already authorized where we can work remotely outside of government facilities that might have temporary restrictions and so we do think that the impact our short term impact maybe measure.
Speaker Change: And in a month or so would be very de minimis with respect to impact to our ongoing activities in the event that they actually do go through another one of these.
Speaker Change: Comfortable unfortunate short term shutdown so.
Jill Hudkins: Yeah, thanks, Dan. And a great question, Sangeeta, on AMP-8 UK water. Although the AMP-8 funding cycle officially starts in April 2025, what we're seeing is multiple UK water clients going out for procurement to be ready and start the planning for the AMP-8 water cycle. A lot of our existing contracts or frameworks, as they call them in the UK, are also being utilized to start the planning or acceleration for the historic AMP-8 UK water spend, which I mentioned in my remarks is 96 billion pounds, which is two times the spend from So, we're very excited about bringing the resources and capabilities and client relationships of RPS along with Tetra Tech, water industry leadership in both wastewater overflow reductions and high-end water management services that Leslie and I talked about earlier in the call. That's very helpful. Thank you. If I can ask one more question,
Speaker Change: I hate to say.
Speaker Change: Bring it on Taiwan never go that far but.
Speaker Change: We're not uninformed are unaware of about the different implications of what we can do as a company.
Speaker Change: Great. Thanks, so much I'm going to turn it back over to others to ask questions.
Speaker Change: Alright, Thank you very much thank you.
Speaker Change: Thank you. Our next question is from Saba Hot Kahn with RBC capital markets. Please proceed with your question.
Speaker Change: Great Thanks, and good morning.
Speaker Change: We provided a bit of color earlier, and as well as in the materials around the Rps integration, so far and the.
Speaker Change: Margin uplift you've seen can you maybe talk about.
Speaker Change: Maybe some of the bigger contributors to that 600 basis point of margin improvement and then maybe what are some of the bigger buckets that are still to go which can maybe add to that margin profile over the next one two years and maybe on the tail end of that just like what are the longer term things because I think the comment in the past has been.
Speaker Change: RPX can do maybe even higher margins than legacy touch guys. So just wanted to I was going.
Speaker Change: Maybe lay out kind of the margin story on the acquired platform for us over the near to medium and long term. Please.
Dan L. Batrack: Dan, thank you for the breakdown on the elections and the possible outcomes, but if I can ask a more shorter-term question, it looks like we've avoided a shutdown, but there is still not that much clarity on passing a full budget. So does this continuation of a short-term CR situation hurt your line of sight into funding opportunities? Like, at what point do we start to worry over the next several months if we don't get a full budget? Thank you. You know, that's a really good question.
Speaker Change: Yes, I'll kind of go.
Speaker Change: The near mid and long term and I'll call. It our phase one two and three.
Speaker Change: And phase, one which was the ability of this last one year. So it was the first the first year, they're with US we're mostly focused on having them.
Speaker Change: Move their cost structure I'll call it cost synergies, which was mostly back office moving to more efficient ERP systems moving on to Tetra Tech.
Speaker Change: So the 600 basis points I would say was mostly associated with cost synergies and that moved them from somewhere between 2% to 4% margin up to the 10% that we entered this year. So those were pretty discrete finite.
Dan L. Batrack: And I've spoken about this, unfortunately, quite a few times over the past few years because of the sort of dysfunction in this funding process. Personally, we here at Tetra Tech think an ongoing continuing resolution is a pretty good outcome. In fact, a really good outcome.
Speaker Change: We took about two thirds of their entire operation, which is really U K and the U S. Very small U S portion and move them onto our ERP system. So we are quite busy doing that so I'd say, we're two thirds finished with that process on the cost side and I would call that most of what space wants to take the cost.
Dan L. Batrack: So continuing resolution means that we agree to disagree and that we'll fund at the same level that existed a year before. And the year before, 2023, was at record highs. And in fact, it allows the administration, in this case, the Biden administration or the Democrats, to further the priorities that they have with the appointees that they have in the different areas for executing strategies. Those do include priorities for a clean environment, or clean water, or mitigation of climate change or extreme flooding events in areas that are very much tailwinds, as many of them describe it for us.
Speaker Change: US from that's the 600 basis points.
Speaker Change: Phase II is actually having them run on our systems and its actually will yield from running at their programs more similarly to Tetra tech changing the portfolio of contracts I think one comment I've made before is.
Speaker Change: We have addition through subtraction and because the work that they've had in the past that as revenue that may not carry margins or carries unusual risk with respect to the type of.
Dan L. Batrack: So a continuing resolution, I would just assume they do one continuing resolution between now and the end of the fiscal year or September 30th, and that we don't have these various milestones where they do a continuing resolution. But I don't see that a CR actually has any negative impact on us. In fact, pretty favorable in a lot of different respects. We'll see how each one of these goes.
Speaker Change: Contracting mechanism, we would look to have that.
Exited from the business and not continue with that work and Thats why I would say that Rps on a revenue basis has been relatively flat.
Speaker Change: When we first acquired them and in fact, some areas actually down but the actual dollars contributed on an EBITDA basis and margin have gone up quite dramatically and thats, what <unk> seen I think we're going to continue the portfolio shaping by having them focus on high end differentiated services that will carry higher margins and I believe that process along.
Dan L. Batrack: They all have their own drama until the 11th hour before they approve them, but I don't see it as an issue. The one thing I will comment on this is that when I go back many years, the first time there was a shutdown, we were quite disappointed and surprised that you would really do this. But this goes all the way back to Gingrich and a number of years ago. But if you take a look at the more frequent threats and dysfunction that's taken place, we've become much more adept at working with our clients to have funding put in place so that we're well prepared for funding that's already been authorized, where we can work remotely outside of government facilities that might have temporary restrictions. And so we do think that the impact or short-term impact, which may be measured in a month or so, would be very de minim So I hate to say, bring it on.
Speaker Change: With revenue synergies is what phase two is and I think we've seen it not in the revenue yet, but we've seen it in contract wins, which I've spoken to that helped drive our increase in our.
Speaker Change: Guidance for both top and bottom line. So I think this year, we'll watch them operationally not from a cost synergies, but operationally execute moving to higher end and move another 20% higher so from 10% to 12% at the end of this year and I think we are off to a really good start on that here in the first quarter.
Speaker Change: Then I'll call phase III phase III is where we will actually be executing work together with.
Speaker Change: Rps seamlessly as one single company, we're going to move collectively to the high end and I do believe that Rps I do recognize that Rps does not have what I would call inherently lower margin work that we have that is cost plus with the federal government, which actually dampen some of the margins that we have they have more consult.
Speaker Change: <unk> and I think as we grow this front end consulting and advisory business, They have particularly advisory business in Australia as an example.
Dan L. Batrack: I will never go that far, but we're not uninformed or unaware about the different implications of what we can do as a company. Great. Thanks so much.
Speaker Change: Led by our Division leader Megan Sullivan is just phenomenal and one of the leaders in the entire industry in that region.
Dan L. Batrack: I'm going to turn it back over to others to ask questions. Great. Thank you very much, Vangita.
Dan L. Batrack: Thank you. Our next question is from Sabahat Khan with RBC Capital Markets. Please proceed with your question.
Speaker Change: I expect that we'll carry margins that are far higher than what we have of Tetra Tech I'd say well over 15% that's going to help I think in this phase III with Tetra Tech's overall margins up and thats, not even including the technologies of Tetra Tech's, bringing with respect to the Delta technologies and subscription services. So the fundamental consulting revenues.
Dan L. Batrack: I guess you provided a bit of color earlier and, as well as in the materials around the RPS integration so far and the margin uplifts you've seen. Can you maybe talk about maybe some of the bigger contributors to that 600 basis point of margin improvement and then maybe what are some of the bigger buckets that are still to go which can maybe add to that margin profile over the next one, two years, and maybe on the tail end of that, what are the longer-term things because I think the comment in the past has been, and RPS can do maybe even higher margins than legacy touch tech. So I just want to maybe lay out kind of the margin story on the acquired platform for us. So, kind of near to medium and long.
Speaker Change: And the margins associated with that out of Rps I think in the phase III that I think will be a 2025, if you want to move to what you would call the longer term I think is going to be very <unk>.
Speaker Change: Very big contributions to the company.
Speaker Change: Oh, great. Thanks for that and then maybe sort of related to the kind of the improved utilization improved margin side can you maybe give some perspective on how the utilization for the combined business is trending and where are there opportunities to maybe improve utilization at rps.
Speaker Change: <unk>.
Speaker Change: That's kind of going for the combined platform and are you on track.
Dan L. Batrack: Yeah, I'll kind of, I'll go near the mid and long term, and I'll call it our phase one, two, and three. And phase one, which was really this last one year. So it was the first year they were with us; they mostly focused on having them move their cost structure, I'll call it cost synergies, which is mostly back office moving to more efficient ERP systems moving on to Tetra Tech. So the 600 basis points, I would say, were mostly associated with cost synergies. And that moved them from somewhere between two to 4% of the margin up to the 10% that we entered this year. So those were pretty discreet and finite.
Speaker Change: Maybe what your initial plan might have been for the combined business.
Speaker Change: Well I would say operationally because we don't the legacy Tetra Tech, we don't differentiate operations from the collective activities. So when we've talked about 70% target. That's if you take the entire companies.
Speaker Change: Our payroll.
Speaker Change: <unk>.
By what we built.
Speaker Change: So I would say that in Rps.
Speaker Change: Those that have migrated onto Tetra Tech's ERP system, we call it <unk>, but the ERP system have actually seen the utilization go up and is beginning to approach Tetra Tech's level, but we still have another third to go.
Speaker Change: With respect to that transition and so they do have lower utilization their systems are not as state of the art as Tetra Tech there not on one complete common system. So they have a lot of integration.
Dan L. Batrack: We took about two-thirds of their entire operation, which is really UK and the US, a very small US portion, and moved them on to our ERP system. So we were quite busy doing that. So let's say we're two-thirds finished with that process on the cost side, and I'd call that most of what's phase one. So take the cost takes us from, that's 600 basis points. Phase two is actually having them run on our systems, and it will actually yield revenue from running their programs more similarly to Tetra Tech, changing the portfolio of contracts. I think one comment I've made before is that we have addition through subtraction.
Speaker Change: Activities that take place that breakdown utilization. So I would say we've watched the rps utilization move up to the Tetra tech level throughout fiscal year 2024, as we remove the rest of it as we move the rest of the company onto our platforms. So Tetra Tech remains pretty highly utilized I would say were still up about.
Speaker Change: About 70% of what I'd call legacy Tetra Tech and by the way I'd say the two thirds of Rps is moved to our systems.
Typically translates to a 13% to 14% EBITDA margin on a GAAP basis want to make clear our GAAP basis.
Dan L. Batrack: And because the work that they've had in the past, that is revenue that may not carry margins or carries unusual risk with respect to the type of contraction mechanism, we would look to have that exited from the business and not continue with that work. And that's why I would say that RPS on a revenue basis has been relatively flat from when we first acquired them. And in fact, some areas are actually down, but the actual dollars contributed on an EBITDA basis and margin have gone up quite dramatically. And that's what you've seen.
Speaker Change: Just make a comment for international investors, if you use <unk> and if you use MSR as probably about a.
Speaker Change: About a six percentage points or 600 basis points difference. So you can take our numbers and add 600 basis points, if you want to.
Speaker Change: <unk> using some international standards, but.
Speaker Change: So I don't think Rps will get to our full utilization.
Speaker Change: Until the end of this year as we trends.
Speaker Change: We've moved them over and transform them onto our ERP systems in the last 30% of their business. So that's sort of our timing and I call the transition on the utilization of staff.
Dan L. Batrack: I think we're going to continue the portfolio shaping by having them focus on high-end differentiated services that will carry higher margins. And I believe that process, along with revenue synergies, is what phase two is. And I think you saw that we haven't seen it in revenue yet.
Speaker Change: Okay, Great and then if I could sneak in one more here.
Speaker Change: Alluded to some of the progress, we're making with the digital subscription model and that tracking better than expected can you maybe just share some thoughts on sort of your outlook or strategy for that business you know how.
Dan L. Batrack: But we've seen it in contract wins, which I've spoken to that help drive our increase in our guidance for both top and bottom line. So I think this year, we'll watch them operationally, not from a cost synergies perspective, but operationally execute, moving to the higher end and move another 20% higher. So from 10% to 12% at the end of this year. And I think we're off to a really good start on that here in the first quarter. Then I'll call it phase three.
Speaker Change: How big are meaningful could that be over the next two to three years and maybe what are you doing to support its growth. You indicated you are not doing much marketing now, but maybe just the plans for the next few years.
Speaker Change: Well I have spoken to some investors and one thing they pointed out to us as you clearly youre not a software company.
Speaker Change: I'd say boy, that's that's the truth.
Speaker Change: But that the very nature of the work that were paid for by our clients to develop these software applications I think Leslie shoemakers spoke well to the funding on the research and development and software applications that were funded by our clients to develop.
Dan L. Batrack: Phase three is where we'll actually be executing work together with RPS seamlessly as one single company. We're going to move collectively to the high end. And I do believe that RPS does not have what I would call inherently lower margin work that we have that is cost plus with the federal government, which actually dampens some of the margins that we have.
Speaker Change: We can typically.
Speaker Change: Retain the IP or the patents and trademarks in the technology itself.
Speaker Change: It has picked up.
Speaker Change: It has sort of taken a growth rate on its own I'd call. It organically growing without are pushing it.
Dan L. Batrack: They do more consulting. And I think as we grow this front end consulting and advisory business they have, particularly the advisory business in Australia, as an example, led by our division leader, Megan Sullivan, who's just phenomenal and one of the leaders in the entire industry in that region, I expect that will carry margins that are far higher than what we have at Tetra Tech. I'd say well over 15%.
Speaker Change: I do want to it is growing well, we want to mature the software products a bit more.
Speaker Change: A number of anchor clients that will become reference.
Platforms that we use as we expand this to other clients in fact, it is interesting some of it some of our anchor clients have referred it to other colleagues in the industry state and local clients. That's what has picked up the subscription without our having gone out and market that so we're maybe we're playing catch up to our own growth.
Dan L. Batrack: That's going to help, I think, in this phase three with Tetra Tech's overall margins going up. And that's not even including the technologies that Tetra Tech is bringing with respect to the Delta technologies and subscription services. So the fundamental consulting revenues on the margins associated with that out of RPS, I think, in phase three, which I think will be in 2025, if you want to move to it, you'd call the longer term, I think are going to be very big contributions for the company. Okay, thanks for that.
Speaker Change: As far as visibility and talking about recurring subscriptions and all of the rest of the.
Speaker Change: Metrics that come along with subscription services.
Speaker Change: I expect to rollout somewhat it's somewhere between 5% to 10% of our overall earnings or EBITDA of the company.
Speaker Change: I think that would translate to $50 million to $100 million in revenue, we see it's about a 50% margin and.
I've shared with others I think selling the first thousand subscriptions.
Dan L. Batrack: And that maybe sort of related to the kind of improved utilization or improved margin side. Can you maybe give some perspective on how you know the utilization for the combined business is trending? Were there opportunities to maybe improve the utilization at RPS?
Speaker Change: Although I'd say in some areas, we're well over that already but selling the first thousand.
Speaker Change: As in some instance, more difficult on selling the next 100 and so we're in that first formula leg it lag period.
Speaker Change: I'd like to say it's.
Dan L. Batrack: Just an understanding of how that's kind of going for the combined platform, and are you on track to maybe what your initial plan might have been for the combined business? Well, I would say operationally, because we don't at the legacy Tetra Tech differentiate operations from collective activities. So when we've talked about the 70% target, that's if you take the entire company's payroll and compare it to what we built. So I would say that in RPS.
Speaker Change: One to two years before we would hit.
Speaker Change: Our financially disclosing tracking and sharing all of the individual metrics on this part of the business and personally my goal would be that it's a segment and that we have complete transparency.
With respect to all of the financial.
Speaker Change: <unk> metrics or key performance indicators kpis in that industry. So I don't think Thats, a 2020 for full disclosure, but I would hope that maybe towards the end of 2025, we'll be at that level and.
Dan L. Batrack: Those that have migrated onto Tetra Tech's ERP system, we call it Tetra Links here, but the ERP system, I've actually seen the utilization go up, and it's beginning to approach Tetra Tech's level, but we still have another third to go with respect to that transition. And so they do have lower utilization. Their systems are not as state-of-the-art as Tetra Tech. They're not on one complete common system
Speaker Change: If we had any earlier, it's because we've been able to play catch up with respect to how this is growing on its own.
Speaker Change: Great. Thanks, very much for all the color.
Speaker Change: Great and thanks very much Simon.
Speaker Change: Thank you. Our next question is from Tate Sullivan with Maxim Group. Please proceed with your question.
Tate H. Sullivan: Okay, great. Thanks, Thanks for all the comments to that and actually a question for Jill on I think you mentioned P. Fast treatment facility in the U S and was that the Orange County facility and can you talk a bit about the <unk> opportunity in terms of have a lot of your orders started to be funded please.
Dan L. Batrack: So they have a lot of integration activities that take place that bring down utilization. So I would say we've watched the RPS utilization move up to the Tetra Tech level throughout fiscal year 2024 as we move the rest of the company onto our platforms. So Tetra Tech remains pretty highly utilized. I would say we're still up about 70% of what I'd call legacy Tetra Tech. And by the way, I'd say the two-thirds of RPS that's moved to our systems typically translates to a 13% to 14% EBITDA margin on a gap basis. I want to make clear that this is a gap basis.
Jill: Sure I'm speaking directly to the my comments, our prepared comments the Orange County Water District program actually includes multiple water treatment program.
Multiple water treatment facilities, including.
Jill: The largest U S facility that I mentioned.
Jill: So that really puts us at the forefront of new.
Jill: Municipal water opportunities and and thought leadership and expertise.
Jill: Relative to RP fast revenues historically.
Dan L. Batrack: I would just make a comment for international investors, if you use IFRS and if you use NSR, it's probably about a six percentage points or 600 basis points difference. So you can take our numbers and add 600 basis points, if you want to, to that screen. Okay, great. And if I could sneak in one more here, you alluded to some of the progress you're making with the digital subscription model and that it is tracking better than expected. Can you maybe just share some thoughts on sort of your outlook or strategy for that business? You know, how big or meaningful could it be over the next two, three years? And maybe, what are you doing to support its growth?
Jill: <unk> had somewhere between $50 million $60 million in annual revenues for P. Fosberg that's predominantly been.
Jill: With department of Defense.
Jill: And more in the characterization and remediation.
Jill: Water bodies.
Jill: And as we contemplate or finalized federal level regulation, I think we will see growing opportunities.
Jill: For state and local facilities much like the Orange County Water District program.
And is that still a I think a couple of presentations ago, you highlighted that the U S. P fast market or maybe it's 200 billion and is that part of the watershed market watershed management opportunity is 380 billion.
Dan L. Batrack: Now you indicated you're not doing much marketing now, but maybe just a plan for the next few years, if you can. Well, I've spoken to some investors, and one thing they pointed out to us is that you clearly are not a software company, and I would say, boy, that's a truth. But the very nature of the work that we're paid for by our clients to develop these software applications, I think Leslie Shoemaker spoke well about the funding for research and development and software applications that are funded by our clients to develop. We typically retain the IP or the patents and trademarks and the technology itself.
Jill: Yes, well in the 380 billion refers to multiple emerging compounds Tetra Tech is not just a leader with an <unk>, but also and micro plastics.
Jill: And pharmaceuticals and.
Jill: In other emerging contaminants so the 380 billion once the combination.
Jill: Multiple emerging.
Jill: Compounds in the market that we see.
Speaker Change: You are correct, the 200 billion referred to.
Speaker Change: What we see is the <unk> market not just for.
Speaker Change: Watershed protection and enhancement, but also for our future treatment opportunities on the municipal side.
Dan L. Batrack: It has picked up, it has sort of taken a growth rate on its own, I'd call it organically growing without our pushing it. I do want to, it is growing well, we want to mature the software products a bit more, and have a number of anchor clients that will become reference platforms that we use as we expand this to other clients. In fact, it is interesting that some of our anchor clients have referred it to other colleagues in the industry, state, and local clients. That's what picked up the subscription without our having gone out and marketed it. So we're maybe playing catch-up to our own growth. As far as visibility and talking about recurring subscriptions and all of the rest of the metrics that come along with subscription services, I expect to roll them out somewhere between 5 to 10 percent of our overall earnings or EBITDA of the company.
Speaker Change: Is this is this opportunity moving faster than you expected or sort of as you expected or any delays in getting people off work if you could summarize it.
Speaker Change: I would say as expected as Dan commented on prior calls as well as myself, which is.
Having spent my whole career in the can.
Speaker Change: Water treatment.
Speaker Change: Arena.
Speaker Change: When I.
Speaker Change: Our clients move forward on programs once Theres, a final regulation and so.
Speaker Change: Until there is a final U S EPA regulation for <unk>.
Speaker Change: There's going to be continued conversation about the.
Speaker Change: The levels that.
Dan L. Batrack: I think that would translate to 50 to 100 million dollars in revenue. We see it's about a 50 percent margin. And I've shared with others I think selling the first thousand subscriptions, although I'd say in some areas we're well over that already. But selling the first thousand is, in some instances, more difficult than selling the next hundred thousand.
Speaker Change: Utilities will be requested or required to treat too.
Speaker Change: So I think.
Speaker Change: It is as expected, it's going to mostly be on the watershed side.
Speaker Change: For characterization until the final U S. EPA regulations are established and they will also be another at that point. Another 24 months typically for compliance.
Speaker Change: Okay, great. Thank you and just one more to fit and please either Dan or Steve as you mentioned you put a sentence in the press release about the repurchases.
Dan L. Batrack: And so we're in that first formulaic period. I'd like to say it's one to two years before we would hit our financial disclosing, tracking, and sharing all of the individual metrics on this part of the business. And personally, my goal would be that it's a segment and that we have complete transparency with respect to all of the financial performance metrics or key performance indicators, the KPIs in that industry. So I don't think it's 2024 full disclosure, but I would hope that maybe toward the end of 2025 we'll be at that level. And if we hit it earlier, it's because we've been able to play catch up with respect to how this is growing on its own. All right, thanks very much for the call.
Speaker Change: <unk>.
Speaker Change: How are you thinking about repurchases relative to acquisitions at this point a year on from Rps. Please.
Speaker Change: Yeah, No I think.
Speaker Change: As many people noted and as we explained.
Speaker Change: Little over a year and a half ago as we were preparing for and figuring out the financing to do or to complete RPM.
Speaker Change: Rps, we put our.
Speaker Change: Share repurchases on hold and as we've brought our leverage down to a.
Speaker Change: Kind of at the midpoint between our range.
Speaker Change: We're starting to once again think about.
Speaker Change: Does that makes sense from a capital allocation and long term.
Speaker Change: Value for our shareholders. So.
Dan L. Batrack: And thanks very much, Seba. Thank you. Our next question is from Tate Sullivan with Maxim Group. Please proceed with your question. Okay, great. Thanks. Thanks for all the comments too, Dan.
Speaker Change: That is something that we are starting to think about.
Speaker Change: Paid that down quite a bit.
Speaker Change: And.
Speaker Change: So that's why that's there.
Speaker Change: Okay, great. Thank you all.
Jill Hudkins: And actually, a question for Jill on, I think, do you mention the PFAS treatment facility in the US and was that the Orange County facility? And can you talk a bit about the PFAS opportunity in terms of whether or not a lot of your orders have started to be funded? Sure. Speaking directly to my comments or prepared comments, the Orange County Water District program actually includes multiple water treatment programs, multiple water treatment facilities, including the largest U.S. facility that I mentioned.
Speaker Change: Thank you Dave.
Speaker Change: Thank you. Our next question is from Andy Whitman with Robert W. Baird. Please proceed with your question.
Andrew John Wittmann: Great. Thanks. Good morning. Thank you for taking my question I guess I'll just build on that last one Dan you mentioned that the M&A pipeline.
Andrew John Wittmann: Strong.
I'm just curious as you look at the opportunities that are in that pipeline are there larger deals in there that you would consider doing I guess I asked that because I guess, that's an implication if rps is far enough along now that you're willing to do something else bigger that would take.
Jill Hudkins: So that really puts us at the forefront of municipal water opportunities and thought leadership and expertise. Relative to our PFAS revenues, historically, we have had somewhere between $50 million and $60 million in annual revenues for PFAS work. That's predominantly been with the Department of Defense and more in the characterization and remediation of water bodies.
Management time, the way larger deals can typically do.
Speaker Change: That's a great question.
Speaker Change: Have said Dennis.
Speaker Change: Demonstrated we've got an incredible track record track record of companies between 101000 people. So if you would ask what's our what's our normal diet diet. We've had 100 people 300 people 500 people a thousand people. So that's been sort of our one to two acquisitions three acquisitions a year in that size range.
Jill Hudkins: And as we contemplate or finalize federal level regulations, I think we will see growing opportunities for state and local facilities, much like the Orange County Water District Program. And is that still, I think a couple of presentations ago, you highlighted that just the US PFAS market, or maybe 200 billion. And is that part of the watershed market, the watershed management opportunity of $380 billion? Yes, and the $380 billion refers to multiple emerging compounds. Tetra Tech is not just a leader on PFAS but also in microplastics, pharmaceuticals, and other emerging contaminants.
And then we've had a few that are larger so we've had about five.
Speaker Change: 506.
Speaker Change: Plus years ago coffee in Australia that round. This out that was a few thousand people.
Speaker Change: UK with White young Green to 3000 people and then 5000 people. So these have been separate sort of two to three years.
Speaker Change: There are others out there that actually fit that are in this I would say that the.
Speaker Change: <unk>.
Speaker Change: The <unk>.
Speaker Change: Management's time, and I would say that means my time and Steve's time is relatively de Minimis with respect to Rps. This has moved into integration of execution within our operations.
Speaker Change: Actually out of all of them Rps arguably has gone the smoothness, it's the largest but it's actually gone the smoothest with respect to each of the different areas. Our people are working together.
Jill Hudkins: So the $380 billion was the combination of multiple emerging compounds and the market that we see, you're correct, the $200 billion referred to what we see as the PFAS market, not just for watershed protection and enhancement but also for future treatment opportunities on the municipal side. Is this opportunity moving faster than you expected or sort of as you expected, or are there any delays in getting PFAS work? to summarize.
Speaker Change: And.
Speaker Change: In many respects they wouldn't know they haven't been here for a long long period of time, So I would say if there's something else at the size of rps or larger which means sort of a $1 billion a year.
Speaker Change: Revenue.
Speaker Change: We're ready and we've got the resources and I will tell you that there'd be no inhibition whatsoever with respect to management's ability to manage it integrate it and make it even more successful than either of the two entities where before they joined US. So we're up ready to go now with respect to.
Jill Hudkins: I would say, as Dan commented on in prior calls, as well as myself, who, having spent my whole career in the water treatment arena, want our clients to move forward on programs once there's a final regulation. And so until there is a final U.S. EPA regulation for PFAS. There's going to be continued conversation about the levels that utilities will be requested or required to treat to, and so I think it's as expected. It's going to mostly be on the watershed side for characterization until those final U.S. EPA regulations are established. And there will also be another 24 months, at that point, typically for compliance.
Speaker Change: Does it actually going to happen it needs to fit two criteria, it's got to fit our strategic maybe three criteria to it's got to fit our strategic direction, we're not going to start making shoes, and we're not going to <unk>.
Pete with Spacex. So we know what we do we want to be the global leader as we are today in water environment and sustainable infrastructure and we want to further the distance that we have with respect to our number one ranking so if they fit with that criteria strategically.
Speaker Change: Number two culturally we want people that are culturally aligned that want to be front end best scientists and technical engineers that are differentiated by providing the best technical solutions to our clients bar none.
Steven M. Burdick: Great, thank you. And just one more to fit in, please, either Dan or Steve, is that you mentioned you put a sentence in the press release about the repurchase capacity. Just how are you thinking about repurchases relative to acquisitions at this point a year on from RPS? Yeah, no. I think, as many people have noted, and as we explained a little over a year and a half ago, as we were preparing for and figuring out the financing to do or to complete RPS, we put our share repurchases on hold.
Speaker Change: They fit those two criteria then we've got the last one which Steve holds me to task all the time as it needs to make financial sense for the company and it needs to be accretive for the company.
Speaker Change: And to our shareholders. So that it actually adds value to the financial structure of the corporation and supported our returns to shareholders. So those are our 123 there are companies out there that meet that go.
Speaker Change: So with respect to are we still busy with rps or anything else.
Speaker Change: We're ready to go and we can find the right opportunities, we will make them actionable, but I'd like Steve's comments. So we did included here with intent.
We have no.
There is no intent for the company to move its.
Speaker Change: Leverage down to sub one if we don't find the right entities that we will take action on and we're going to deploy the capital back to our shareholders either through dividends or buybacks in the event that we don't have a.
Steven M. Burdick: And as we've brought our leverage down to, you know, kind of the midpoint between our range, we're starting to, once again, think about. You know, does that make sense from a capital allocation perspective, as a long-term value for our shareholders? So that is something that we are starting to think about now that we've paid that down quite a bit. So that's why that's there. Great, thank you all.
Speaker Change: Strategic entity through M&A to join the company. So we are going to use our capital.
Speaker Change: Allocation.
Speaker Change: To ensure that it goes back to shareholders.
Speaker Change: It was a thorough answer thank you I guess.
I'm going to ask for just another kind of angle on that one just because I havent asked it before or at least in a while but theres been private equity that has moved into the consulting and the environmental consulting space I think today more than we've seen in the last.
Dan L. Batrack: Thank you. Our next question is from Andy Wittmann with Robert W. Baird. Please proceed with your question. Great, thanks. Good morning.
Speaker Change: While some pretty highly regarded companies I'm just curious.
Speaker Change: As they look to transact, while you've never been at auction buyer.
Dan L. Batrack: Thank you for taking my question. I guess I'll just build on that last one and ask Dan. You mentioned that the M&A pipeline is strong. I'm just curious, as you look at the opportunities that are in that pipeline, are there larger deals in there that you would consider doing? I guess I asked that because I guess it's an indication if RPS is far enough along now that you're willing to do something else bigger that would take management time the way larger deals can typically do. That's a great question. As I said, we've got an incredible track record of companies with between 100 and 1000 people. So if you ask us what our normal diet is, we've had 100 people, 300 people, 500 people, 1000 people.
Speaker Change: From a banker.
Speaker Change: These companies.
Speaker Change: Candidates, you think or could they be a good fit inside of Tetra Tech.
Speaker Change: I'm just kind of curious as to your thought process on that now that the company has grown your company has grown to larger size, yes, it's a really good question.
Speaker Change: The great torch and good fortune to have been in this industry for a while.
Speaker Change: I do recall does it seems like yesterday when the only thing <unk> ever stood firm was a professional engineering license. We didn't know that was private equity and 1 million years, that's changed nowadays they wouldn't nobody knows that piece for professional engineering, it's only private equity now I think I've seen over the past few years, it's remarkable that if you go back pre the.
Dan L. Batrack: So that's been sort of our one to two acquisitions, three acquisitions a year in that size. And then we've had a few that are larger. So we had about five, six plus years ago, a copy in Australia that rounded us out. That was a few thousand people. UK with White, Young, Green, two, three thousand people, and then five thousand people.
Speaker Change: The increased interest rates.
I don't want to wander too far on this but.
Speaker Change: There was no cost of capital they could lever up eight times nine times I saw some private equity go to 10 times they require management teams to rollover, 40%. So they're buying these companies essentially with no out of pocket dollars, but I've seen in the past two or three years that changed dramatically rollover dollars have become less the leverage has become smaller maybe.
Dan L. Batrack: So these have been around for every sort of two to three years. There are others out there that actually fit that are in this. I would say that the B.
Speaker Change: Down to six times or even less and whats happened is <unk>.
Speaker Change: I think that some private equity who are not.
Dan L. Batrack: Management's time, and I would say that means my time and Steve's time, is relatively de minimis with respect to RPS. This has moved into integration of execution within our operations. Actually, out of all of them, RPS arguably has gone the smoothest.
Speaker Change: Equity entities that are not as familiar with this industry may have overpaid dramatically and in fact based on the buy and Youre going to see it through all sorts of different metrics that if youre in the industry I could.
Speaker Change: Take it offline and go into all the details you would see what those are and I think they may end up having to breakup and sell components and look for more what I would call appropriate valuations that would make it attractive for us I think they'll try auctions, but I've actually seen management teams say that I don't want to go to X. So I'm also seeing management teams interact with.
Dan L. Batrack: It's the largest, but it's actually gone the smoothest with respect to each of the different areas. People are working together, and in many respects, they wouldn't know they haven't been here for a long, long period of time. So I would say if there's something else at the size of RPS or larger, which means sort of a billion dollars in annual revenue, we're ready, and we've got the resources, and I will tell you that there would be no inhibition whatsoever with respect to management's ability to manage it, integrate it, and make it even more successful than either of the two entities were before they joined us. So we're up, ready to go. Now with respect to whether it is actually going to happen, it needs to fit two criteria.
Speaker Change: Private equity to actually have a see where they go and when a company has a say where they want to go for a career nobody has a better destination that tetra tech period, and I think it can be win win for the shareholders. We can actually help out private equity, where they need to monetize portions of and overpaid investment and and it can be good for <unk>.
Speaker Change: <unk>, so a straight up auction, where you pay a higher number because they want to flip it and yield some large return.
Dan L. Batrack: It's got to fit our strategic direction, maybe three criteria, two. It's got to fit our strategic direction. We're not going to start making shoes, and we're not going to compete with SpaceX, so we know what we do. We want to be a global leader as we are today in water, the environment, sustainable infrastructure, and we want to further the distance that we have with respect to our number one ranking. So if they fit with that criteria strategically, they're in. Number two, culturally, we want people that are culturally aligned that want to be front-end best scientists and technical engineers that are differentiated by providing the best technical solutions to our clients, bar none. They fit those two criteria,
Speaker Change: That may not be as viable as it was when interest rates were sub 1%. So.
Speaker Change: It may be a little bit more detail than you were looking at but it does reflect the perspective, we have here at Tetra Tech.
Speaker Change: I appreciate the context, thanks for indulging me on that one just a technical question, maybe Steve for you to wrap up for me can.
Steven M. Burdick: Can you quantify the amount of Ukraine net revenue in the quarter as well as any contribution that you expected from Ukraine, and the second quarter guidance. Thank you.
Yeah.
Steven M. Burdick: In the last quarter it was.
Steven M. Burdick: Probably right around $75 million.
Steven M. Burdick: Is what came in from Ukraine.
Speaker Change: And that was that gross or net.
Dan L. Batrack: Then we've got the last one, which Steve holds me to task on all the time, which is that it needs to make financial sense for the company, and it needs to be accretive for the company and for our shareholders so that it actually adds value to the financial structure of the corporation and supports our returns to shareholders. So those are our one, two, and three. There are companies out there that meet that, but with respect to whether we're still busy with RPS or anything else, we're ready to go, and if we find the right opportunities, we will make them actionable, but I'd like Steve's comments, and we did include it here with intent. We have no, there's no intent for the company to move its leverage down to sub one.
Speaker Change: Sorry.
Speaker Change: Net.
Speaker Change: That was about $35 million.
Speaker Change: We had expected going into the quarter, just because there was quite a few contracts that were won late.
Speaker Change: We released earnings.
Speaker Change: Got it and then is there any expectation for second quarter revenue contribution from Ukraine.
Speaker Change: Yes, there is.
Speaker Change: We have contracts that are continuing and that's included in our.
Speaker Change: Our guidance.
Speaker Change: Now.
Right around there.
Speaker Change: The $20 million to $40 million ish is our estimate.
Speaker Change: Great. Thank you very much have a nice day.
Speaker Change: Thank you very much Andy.
Speaker Change: Thank you. Our last question is from Michael Dudas with vertical Research partners. Please proceed with your question.
Dan L. Batrack: If we don't find the right entities that we will take action on, we're going to deploy the capital back to our shareholders either through dividends or buybacks in the event that we don't have a strategic entity through M&A to join the company. So we are going to use our capital allocation to ensure that it goes back to shareholders. That was a thorough answer. Thank you. I'm going to ask for just another kind of angle on that one, just because I haven't asked it before, or at least in a while.
Michael Dudas: Thank you for squeezing me in I appreciate it just quickly on them.
Michael Dudas: Your assessment, you talked a bit about on the last call about renewable energy in some.
Michael Dudas: What's been going on with some of the volatility in that space.
Michael Dudas: Some updated thoughts as you assess in 'twenty for me through the lens of Rps and what Youre doing internationally and some of the wind and offshore work, that's been kind of pushed and pulled here.
Michael Dudas: In North America.
Michael Dudas: Yeah.
Michael Dudas: Yes.
Speaker Change: Really good question I'll start with the renewable energy overall for US is four big ones in a call one smaller.
Dan L. Batrack: But there's been private equity that has moved into the consulting and environmental consulting space, I think, today, more than we've seen in the last few years, while some pretty highly regarded companies. I'm just curious, as they look to transact, while you've never been an auction buyer or a buyer from a banker, are these companies... Candidates, do you think, or could they be a good fit inside of Tetra Tech? I'm just kind of curious as to your thought process on that now that the company's grown, your company has grown to a larger size. Yes, it's a really good question. I've had the great fortune, or good fortune, to have been in this industry for a while. And I do recall, this seems like yesterday, when the only thing PE ever stood for was a professional engineering license. We wouldn't know that was private equity in a million years. Now that's changed. Nowadays, nobody knows that PE stands for professional engineering.
Speaker Change: Onshore wind offshore wind solar hydro and a little bit of geothermal. So that's our that's primarily are truly renewable energy our portfolio of areas that we're focused on no doubt the supply chain, which is code for increased costs and availability of turbines towers labor other.
Speaker Change: Items has gone up and has created some volatility for sure.
Speaker Change: We've not really engaged that much on the on site.
Speaker Change: Support of the construction activities, we do do compliance that they are meeting their environmental permits in.
Speaker Change: Water quality monitoring and things like this so most of the work we're doing on the upfront permitting work.
Speaker Change: So it is interesting we did support our number of some of the programs that have actually been cancelled or tabled and theyre looking to sell them.
Speaker Change: I don't know if I would call the word offload, but provide them to other developers that it may make their financial.
Dan L. Batrack: It's only private equity. Now, the thing I've seen over the past few years is remarkable that if you go back before the increased interest rates, I don't want to wander too far on this, but, you know, there was no cost of capital. They could lever up eight times, nine times.
Speaker Change: Measure better and so that just gives us a chance to do the work all over again. So what has been one project may turn into two projects or three projects if it rolls over again. So it is interesting on the upfront work.
Dan L. Batrack: I saw some private equities go to 10 times. They require management teams to roll over 40%, so they're buying these companies essentially with no out-of-pocket dollars. But I've seen in the past two or three years that change dramatically. Rollover dollars have become less.
Speaker Change: It's actually been.
Speaker Change: Pretty good for us interestingly enough.
Speaker Change: Certainly don't want to say that a misfortune because of economic challenges for a developer.
Speaker Change: It turned into good fortune for us, but we do think that we can help the clients turn.
Dan L. Batrack: The leverage has become smaller, maybe down to six times or even less. And what's happened is, I think that some private equity firms who are not equity entities that are not as familiar with this industry may have overpaid dramatically. And in fact, based on the, you're going to see it through all sorts of different metrics; if you're in the industry, I could, take it offline and go into all the details; you'd see what those are. And I think they may end up having to break up and sell components and look for more, what I would call appropriate valuations that would make it attractive for us. Now I think they'll try auctions, but I've actually seen management's teams say that I don't want to go to X.
Speaker Change: Lemons into eliminated with respect to what was a difficult situation into something that can actually yield value through different permitting process or changing the.
Speaker Change: The number of.
Speaker Change: Power generation locations.
Speaker Change: We've not seen that impact quite as much on solar we have not seen a hydro is a big item.
Speaker Change: Hydro is generated about half of the overall renewable energy power generation across North America.
Speaker Change: Half of it comes just from hydro.
Speaker Change: The most recent numbers like 44%, so that's gone well for us and of course.
Speaker Change: Big push for environmental impacts associated with.
Speaker Change: Impacts to fisheries than others. Some have said taking Tam is down you can hardly imagine the number of permitting technical evaluations things with respect to fisheries.
Dan L. Batrack: So I'm also seeing management teams interact with private equity to actually have a say where they go. And when a company has a say on where they want to go for a career, nobody is a better destination than Tetra Tech, period. And I think it can be a win-win for shareholders. We can actually help out private equity where they need to monetize portions of an overpaid investment. And it could be good for Tetra Tech. So a straight up auction where you pay a higher number because they want to flip it and yield some large return that may not be as viable as it was when interest rates were sub 1%.
Speaker Change: Everything else endangered species with respect to taking something down or.
Our big advocate I think it can be a win win we're doing a lot of work on hydro with fish passage. So how can you actually include or expand fish passage is such that you can restore the habitat for fisheries, while still maintaining power generation in flood control along major river systems across North America. So.
That's gone well for us here.
Speaker Change: In the U S. We've had a number of big wins in Australia that we've actually press release that would not have been won either we believe by Rps or Tetra Tech alone.
Speaker Change: Had phenomenal people in Australia, and really some of the thought leaders we have in the U K, where really a lot of the biggest offshore wind and onshore wind.
Speaker Change: Was was initiated.
Speaker Change: We've done well with the advent of Rps joining us so.
Dan L. Batrack: So this may be a little bit more detailed than you were looking at, but it does reflect the perspective we have here at Tetra Tech. I appreciate the context, and thanks for indulging me on that one. Just a technical question, maybe, Steve, for you to wrap up for me. Can you quantify the amount of Ukraine's net revenue in the quarter, as well as any contribution that you expected from Ukraine in the second quarter guidance? Yeah, the last quarter was probably right around 75 million, which was what came in from Ukraine, and that was... That's gross or net revenue? Sorry. Net.
Speaker Change: Kind of wandered around there a little bit, but I guess I would say on balance I see the renewable energy work up for us.
Speaker Change: And that does not translate into more is being constructed im saying more is being studied and evaluated for bringing power generation online through renewable energy sources.
Speaker Change: I appreciate that thank you.
Speaker Change: Thank you very much Michael.
Speaker Change: This will conclude the Q&A session I will now turn the conference over to Dan Patrick to conclude.
Well. Thank you very much Paul thanks for introducing us this morning and for turning it back to us as a team.
Dan L. Batrack: I really appreciate all of your questions I appreciate you being on the call today and for all of the current shareholders and those interested in following Tetra Tech I really appreciate your being on the call and following and getting a little bit of insight into tetra Tech's entire water cycle I know theres been some confusion that individuals that may do.
Steven M. Burdick: And that was, you know, about $35 million more than what we had expected going into the quarter just because there were, you know, quite a few contracts that were won late, you know, after we released our new contract. Got it. And then is there any expectation for second quarter revenue contribution from Ukraine? Yeah, there's, you know, we have contracts that are continuing, and that's included in our guide. You know, right around here.
Dan L. Batrack: Treatment of one water treatment plant or one other aspect or somehow analogous to tetra tech and that they're magically appear.
Dan L. Batrack: Hope that today's details presented by Dr. Leslie Shoemaker, and Jill and I assure you we have.
Dan L. Batrack: Thousands and thousands of others professionals to dedicate their entire careers.
Steven M. Burdick: $20 to $40 million-ish is our estimate. Thank you very much. Thank you very much, Andy. Thank you. Our last question is from Michael Dudas with Vertical Research Partners. Please proceed with your question. Thank you for squeezing me in. I appreciate it. Just quickly on...
Dan L. Batrack: Just to the water cycle, all the way from research and development through coastal flooding and navigation systems.
Dan L. Batrack: We are the pure play water and environmental leader and we expect to remain in that and we are going to continue to evolve the entire.
Dan L. Batrack: Process and technology application to this industry to transform it to new heights to for value for our clients across the board and I look forward to sharing more details on exactly which programs we have.
Dan L. Batrack: Your assessment, you talked a bit about on the last call about renewable energy and some of the, what's been going on with some of the volatility in that space. Maybe some updated thoughts as you assess North Carolina in 2040 through the lens of RPS and what you're doing internationally and some of the wind and offshore work that's been kind of pushed and pulled here in North Carolina. Yeah, it's a really good question.
Dan L. Batrack: And.
Dan L. Batrack: And sharing with you how they translate into higher growth and higher margins for our collective business and for our shareholders and with that I look forward to talking to you on our next quarterly call and hope you have a great rest of the day and week. Thank you.
Dan L. Batrack: I'll start with renewable energy. Overall, for us, there are four big ones, and I'll call them one small one. So it's onshore wind, offshore wind, solar, hydro, and a little bit of geothermal. So that's primarily our truly renewable energy portfolio of areas that we're focused on. And no doubt the supply chain, which is code for increased costs and availability of turbines, towers, labor, and other items, has gone up, and it's created some volatility for sure. We're not really engaged that much in the on-site support of the construction activities.
Speaker Change: Ladies and gentlemen, this concludes our conference for today. Thank you.
Speaker Change: You all for participating and have a nice day.
Dan L. Batrack: We do ensure that they're meeting their environmental permits and water quality monitoring and things like this. So most of the work we do is on the upfront permitting work. So it is interesting; we did support a number of some of the programs that have actually been canceled or tabled, and they're looking to sell them, or I don't know if I should call the word offload, but provide them to other developers so that it may make their financial measures better. And so that has given us a chance to do the work all over again. So what has been one project may turn into two projects or three projects if it rolls over again. So it is interesting in the upfront work. It's actually been pretty good for us, interesting enough.
Dan L. Batrack: I certainly don't want to say that a misfortune because of economic challenges for a developer turned into good fortune for us. But we do think that we can help the clients turn lemons into lemonade with respect to what was a difficult situation into something that can actually yield value through a different permitting process or changing the number of power generation locations. We've not seen that impact quite as much on solar. We have not seen hydro is a big item. As you know, hydro has generated about half of the overall renewable energy power generation across North America. In fact, about half of it comes just from hydro. I think the most recent number is around 44%.
Dan L. Batrack: So that's gone well for us. And, of course, the big push for environmental impacts associated with impact on fisheries and others. Some have said taking TAMs down.
Dan L. Batrack: You can hardly imagine the number of permitting technical evaluations, things with respect to fisheries, everything else, endangered species with respect to taking something down. Or what we are a big advocate for; I think it can be a win-win. We're doing a lot of work on hydro, but fish passages. So how can you actually include or expand fish passages so that you can restore the habitat for fisheries while still maintaining power generation and flood control along major river systems across North America?
Dan L. Batrack: So that's gone well for us here in the U.S. We've had a number of big wins in Australia that we've actually pressed release on that would not have been won either, we believe, by RPS or Tetra Tech alone. Got phenomenal people in Australia and really some of the thought leaders we have in the UK, where really a lot of the biggest offshore wind and onshore wind was initiated. We've done well with the advent of RPS joining us. So I kind of wandered around there a little bit, but I guess I'd say, on balance, I see renewable energy working out for us. And that does not translate into more being constructed. I'm saying more is being studied and evaluated for bringing power generation online through renewable energy sources.
Dan L. Batrack: I appreciate that. Thank you. Thank you very much, Mike. This will conclude the Q&A session. I will now turn the conference over to Dan Batrack to conclude. Well, thank you very much, Paul. Thanks for introducing us this morning and for turning it back to us as a team. I really appreciate all of your questions. I appreciate you being on the call today and for all of the current shareholders and those interested in following Tetra Tech. I really appreciate your being on the call and following along and getting a little bit of insight into Tetra Tech's entire water cycle. I know there's been some confusion that individuals that may do treatment of one water treatment plant or one other aspect are somehow analogous to Tetra Tech and that they're magically up here.
Dan L. Batrack: I hope that today's details presented by Dr. Leslie Shoemaker and Jill and I assure you, we have, thousands and thousands of others professionals that dedicate their entire careers just to the water cycle all the way from research and development through coastal flooding and navigation systems that we are the pure play water and environmental leader and we expect to remain in that and we are going to continue to evolve the entire thought process and technology application to this industry to transform it to new heights to for value for our clients across the board and I look forward to sharing more details on exactly which programs we have and in sharing with you how they translate into higher growth and higher margins for our collective business and for our shareholders and with that I look forward to talking to you on our next quarterly call and hope you have a great rest of the day and week. Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day.